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Just wondering - does being in CNC status stop penalties and interest from accruing on the tax debt? I'm considering applying for it myself.
No, it doesn't stop penalties and interest unfortunately. Your debt keeps growing while in CNC, but at least they're not actively trying to collect from you. It's a temporary solution, not forgiveness.
I went through this exact same situation about 6 months ago! Got the 433-F request after being in CNC for about 20 months. I was terrified they were going to kick me out because my freelance income had gone up slightly. Here's what I learned: The key is being thorough and honest about ALL your expenses, not just focusing on income changes. Document everything - rent, utilities, groceries, car payments, insurance, medical costs, childcare, etc. The IRS uses standard allowable living expense amounts, but they'll consider documented expenses above those standards if you can prove they're necessary. In my case, even though my income increased by about $6k annually, my rent had gone up significantly and I had new prescription costs that weren't there before. I made sure to include every receipt and explanation. They kept me in CNC status because my actual ability to pay hadn't really improved. The review process took about 6 weeks total from when I submitted the form. Don't ignore it - that's the one thing that will definitely get you kicked out of CNC. But don't panic either. If your financial situation is still legitimately tight, you'll likely be fine.
This is really helpful to hear from someone who went through the same thing! I'm curious - when you say you documented "every receipt and explanation," did you literally attach copies of all your bills to the 433-F form? I'm wondering how much supporting documentation I should include vs just filling out the form itself. Also, did you get any communication from the IRS during those 6 weeks while they were reviewing, or did you just have to wait it out in silence?
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Something nobody has mentioned: your cousin might benefit from an S-Corporation election instead of changing retirement accounts. With an S-Corp, she could pay herself a reasonable salary (subject to SE tax) and take the rest as distributions (not subject to SE tax). For example, if her net business profit is $35,000, she might pay herself a salary of $25,000 (subject to SE tax) and take $10,000 as a distribution (not subject to SE tax). This could save her around $1,500 in SE taxes. There are costs involved (state filing fees, possibly payroll service), but at $35k income level, it might be worth exploring.
The S-Corp strategy doesn't work well at such low income levels. The costs of maintaining the S-Corp (state fees, additional tax return, payroll processing) would likely eat up any SE tax savings. Plus the IRS scrutinizes "reasonable compensation" - you can't just say your $35K job is only worth $25K salary. Most tax professionals don't recommend an S-Corp until you're netting at least $60-80K from your business because of these fixed costs.
You make good points about the costs eating into potential savings. For $35K, you're right that the administrative burden probably outweighs the benefits. Regarding reasonable compensation, there are actually legitimate ways to determine this based on market rates for the specific work being performed. It's not arbitrary, but you do need documentation to support your salary level if audited. But your broader point stands - at lower income levels, the S-Corp strategy offers diminishing returns due to fixed costs.
One thing I haven't seen mentioned: health insurance! If your cousin pays for her own health insurance as a self-employed person, those premiums can be deducted on Line 16 of Schedule 1, which DOES reduce self-employment tax. This could be significant - if she's paying $400/month for health insurance, that's $4,800 that won't be subject to SE tax, saving about $735 in SE taxes.
That's really helpful! She does pay for her own health insurance - about $350/month. So that should help reduce the SE tax a bit. Thanks for pointing this out! Is there anything else that can reduce SE tax for a sole proprietor with 1099 income?
Beyond health insurance premiums, there are a few other deductions that can reduce SE tax: 1. **Half of SE tax itself** - This is automatic and calculated on Schedule SE 2. **HSA contributions** - If she has a High Deductible Health Plan, HSA contributions reduce SE tax (up to $4,300 for 2024 self-only coverage) 3. **Business expenses on Schedule C** - Things like equipment, software subscriptions, home office deduction, professional development, etc. These reduce net business profit before SE tax is calculated The key difference is WHERE the deduction is taken. Schedule C business expenses and health insurance premiums reduce SE tax, while retirement account contributions and QBI deduction only reduce income tax. With her $350/month health insurance, that's $4,200 annually which should save her about $643 in SE taxes. Combined with maximizing legitimate business deductions on Schedule C, she can definitely reduce that $4,200 SE tax burden.
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It's worth mentioning that if this is a side gig on top of your regular W-2 job, you might need to make quarterly estimated tax payments next year if you expect to owe more than $1000 in taxes from your self-employment income. You can get penalties if you wait until filing season to pay everything!
Omg I had no idea about this! I made about $6k from Doordash last year and didn't pay anything quarterly. Am I going to get hit with huge penalties??
Don't panic! For your first year of self-employment, the penalties are usually pretty small or might even be waived. What you should do now is make sure you're setting aside about 25-30% of your gig earnings for taxes going forward. For next year, look into Form 1040-ES for estimated payments. The due dates are April 15, June 15, September 15, and January 15. You can also potentially avoid penalties by having extra withholding taken from your W-2 job to cover your self-employment taxes. The IRS has a Tax Withholding Estimator on their website that can help you figure out the right amount.
Yes, you absolutely need to report both income sources! The $950 from DoorDash and $135 from Grubhub must both be reported on your tax return, regardless of how small the amounts seem. Here's the key rule: There's NO minimum threshold for reporting self-employment income. While companies only send 1099-NEC forms when you earn $600 or more (so you might not get one from Grubhub), you're still legally required to report ALL income you receive. Since your combined total is $1,085, you'll also need to pay self-employment tax (15.3% for Social Security and Medicare) because you're over the $400 threshold. You'll report everything on Schedule C and calculate the SE tax on Schedule SE. The good news? You can deduct legitimate business expenses like mileage (67¢ per mile for 2024), portion of your phone bill, insulated bags, car chargers, etc. These deductions reduce your taxable income and can make a significant difference in what you owe. Since both gigs are delivery work, you can combine them on a single Schedule C rather than filing separate forms for each app. Keep good records of everything in case of questions later!
This is really helpful! I had the same confusion about reporting small amounts. One quick follow-up question - when you mention deducting mileage at 67¢ per mile, does that include all the driving I do while logged into the apps, or just when I'm actually delivering food? Like, can I count the miles driving to restaurants to pick up orders, or waiting in parking lots between deliveries?
Great question! For mileage deduction, you can count ALL business-related driving while you're actively working, not just the final delivery miles. This includes: - Driving to restaurants to pick up orders - Driving from restaurant to customer - Driving between deliveries while you're logged in and available - Driving to your first pickup of the day from home - Driving home from your last delivery However, you CAN'T count: - Personal errands mixed in with work - Driving while logged off from the apps - Commuting to a "regular" workplace The key is that the driving must be for business purposes. Waiting in parking lots between deliveries while logged in would count as business time, so any driving from there to your next pickup is deductible. Just make sure to track your mileage contemporaneously - apps like Stride or MileIQ make this super easy and provide the documentation you'd need if audited. The IRS is pretty reasonable about delivery driver mileage as long as you're not claiming obviously inflated amounts compared to your income level.
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This is such a common issue during tax season! The same thing happened to my sister last year - the IRS "Where's My Refund" tool kept showing her refund as deposited even though her account had been closed months earlier. What typically happens is the bank returns the deposit to the IRS within 1-3 business days of the attempted deposit, but the IRS system doesn't update to reflect this. The paper check process then takes an additional 2-4 weeks from the date of the rejected deposit. Since your refund shows as deposited on February 15th, your bank likely rejected it around February 16th-18th. This means your paper check was probably issued sometime in early to mid-March, so you should be receiving it very soon if you haven't already! A few things you can do: Call your old bank to confirm they rejected and returned the deposit (this will give you peace of mind), make sure your current address matches what's on your tax return, and if you moved recently, set up mail forwarding with USPS just in case. The money isn't lost - it's just taking the IRS time to process the returned funds and mail the check. Hang in there!
This is really reassuring to hear! I'm actually going through the exact same situation right now - my refund shows as deposited but my account was closed last month. I've been losing sleep over this thinking my money just vanished into thin air. Your timeline breakdown is super helpful. If the pattern holds true, I should be getting my paper check within the next week or two. I'm definitely going to call my old bank tomorrow to get that confirmation about the rejected deposit - that's such a smart suggestion that I hadn't thought of. Thanks for sharing your sister's experience and walking through the process so clearly. It's amazing how many people seem to go through this same scenario! Really appreciate the peace of mind.
I've been following this thread as I'm dealing with a very similar situation myself! My refund was supposedly "deposited" on February 20th, but I just realized my savings account was closed in January due to minimum balance issues after some unexpected expenses. Reading through everyone's experiences here has been incredibly helpful - especially learning that the "Where's My Refund" tool basically lies to you about the actual status when deposits get rejected. It's frustrating that the IRS system doesn't update to show what's really happening. Based on the timelines everyone has shared, it sounds like I should expect my paper check sometime in the next week or so (if the 2-4 week processing window holds true). I'm definitely going to call my old bank tomorrow to confirm they rejected and sent the funds back - that seems like the best way to get actual confirmation that the process is moving along. Has anyone here actually received their paper check yet? I'd love to hear if the timelines people predicted actually matched reality. This whole situation has been so stressful, but this community discussion has given me hope that my refund isn't lost forever!
I'm in almost the exact same boat as you! My refund showed as "deposited" on February 22nd, but I discovered my account was closed in late January when I switched banks after moving. I've been frantically checking my mailbox every day wondering where my money went. This thread has been a lifesaver - I had no idea the IRS tracker would still show "deposited" even when the bank rejected it. It's so misleading! Based on everyone's shared timelines, it sounds like we should both be getting our paper checks any day now. I called my old bank this morning after reading all the suggestions here, and they confirmed they rejected a Treasury deposit on February 23rd and returned it the same day. The representative was really helpful and even gave me the exact amount that was returned, which matched my expected refund. Such a relief to know the money is actually making its way back through the system! Definitely call your bank - it's the fastest way to get real confirmation about what's happening. Fingers crossed we both see our checks this week!
Hiroshi Nakamura
Hey, one thing nobody mentioned - the type of entity matters a lot here. Is this an LLC taxed as a partnership, an S-Corp, or something else? The K-1 looks different depending on the entity type and the tax treatment varies.
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Isabella Costa
•This! I got distributions from an S-Corp and the rules were totally different from my friend who got them from an LLC. Like with an S-Corp you can take distributions that aren't taxable as long as you've paid yourself a reasonable salary first.
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Zoe Alexopoulos
As someone who went through this exact situation last year, I can tell you that understanding the difference between distributions and taxable income is crucial. You mentioned receiving both cash and a K-1 - this is totally normal for partnership equity holders. One thing I wish I'd known earlier: keep detailed records of ALL your distributions and the corresponding K-1s each year. The IRS expects you to track your basis over time, and if you ever sell your equity or the amounts get more complex, you'll need this history. Also, don't panic about "phantom income" (where you owe taxes on income you didn't receive in cash). It's frustrating but normal in partnerships. The good news is that if the company is profitable enough to make distributions, they're usually distributing enough to at least cover most of the tax burden from the K-1 income. One last tip - if your distribution amount is significantly different from your share of Box 1 income, ask your former company's accounting team for clarification. Sometimes there are timing differences or special allocations that can affect these numbers.
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Aiden O'Connor
•This is really helpful advice, especially about keeping detailed records! I'm curious about the "phantom income" situation you mentioned. If the company distributed enough to cover most of the tax burden, how do you figure out what portion of your distribution should be set aside for taxes? Is there a general rule of thumb, or does it depend on your overall tax situation? I'm trying to plan ahead since this will probably happen again next year, and I don't want to spend the distribution money only to realize I owe more in taxes than I expected.
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